September 24, 2015

Filed Electronically

Office of Regulations and Interpretations Office of Exemption Determinations

Employee Benefits Security Administration Employee Benefits Security Administration

U.S. Department of Labor U.S. Department of Labor

200 Constitution Avenue, NW, Room N-5655 200 Constitution Avenue, NW, Suite 400

Washington, DC 20210 Washington, DC 20210

Re: Definition of the Term “Fiduciary:” Conflict of Interest Rule (RIN 1210–AB32)

Proposed Amendment to Proposed Partial Revocation of Prohibited Transaction 

Exemption 84-24 (ZRIN 1210-ZA25)

Proposed Best Interest Contract Exemption (ZRIN 1210-ZA25)

To Whom It May Concern:

The undersigned are leading life insurance companies in the United States. We are pleased to have this 

opportunity to provide additional comments on the Department of Labor’s (“Department’s) proposed 

fiduciary advice regulation and related prohibited transaction exemptions (the “Proposal”). We 

appreciate the Department’s efforts to understand our industry’s questions and concerns about the 

Proposal and to work with us to address the Proposal’s unintended consequences that would limit 

consumers’ access to critical lifetime income guarantees through annuities. 

We further appreciate the Department’s recognition of the important role of guaranteed income in 

retirement planning for America’s workers. First and foremost, as insurance products, variable annuities 

provide valuable lifetime guarantees, even though they are also registered securities. Because variable 

annuities are insurance products, the features of and compensation related to such annuities are 

materially different from mutual funds and other types of securities, for which the Best Interest Contract 

Exemption (“BIC Exemption”) appears primarily to have been designed. 

We strongly believe that long-standing PTE 84-24 should continue to include variable annuities. 

Apparently, in the Department’s view, these products are better covered under the BIC Exemption 

simply because they are also regulated as securities. The securities laws themselves recognize that 

variable annuities are different from mutual funds and accommodate these differences in various 

places. See, for example, FINRA Rule 2330, FINRA IM-2210-2 and SEC Form N-4. There is nothing 

inherent in ERISA plans and IRA’s that would call for a different perspective. We believe that retirement 

savers will be presented with more lifetime income options by advisors if the Department provides 

product flexibility and choice by keeping the current treatment of variable annuities with all other 

annuity and insurance options under PTE 84-24. 

If the Department opts to keep variable annuities in the BIC Exemption, the Department has asked for 

specific recommendations to amend the BIC Exemption so that it would be workable for investment 

advice related to annuities. The following proposed changes to the exemption text are intended to 

achieve two primary objectives: 
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• First, these changes recognize and address the real differences presented by insurance contracts 

and annuities, and amend the securities-focused language to address these unique concerns. 

Without these changes, we believe the exemption as proposed would severely disadvantage 

insurance products and annuities in the marketplace, undermining the Department’s goal of 

ensuring retirees have access to guaranteed income solutions through annuities. 

• Second, we suggest more general changes to the exemption to facilitate its wider use by 

advisors. 

The operational complexities of the BIC Exemption must be simplified if advisors and firms that offer 

annuities are to use it. The Department has proposed Section VI under the BIC exemption and this 

section can be amended to address our concerns. A redline of these changes is included in Appendix A 

to this letter.

The changes are summarized below: 

Reasonable compensation. The Department should amend the BIC Exemption to provide an annuity 

specific definition of “reasonable compensation” that accounts for the value of the insurance 

guarantees and other benefits inherent in an annuity product and their costs, and the extensive time 

needed for up-front client education that is required for annuity product sales. This would make clear 

that insurance commissions that are higher than mutual fund commissions, or that are initially higher 

than fee-based compensation, are reasonable provided they are consistent with customary 

compensation practices in the annuity marketplace. It would also expressly permit insurers to maintain 

the “statutory employee” programs. The topic of statutory employee programs was something that the 

Department requested more information about at the August 24 meeting. Please see attached Appendix

B for more details about insurance company statutory employees.

Definition of Material Conflict of Interest. An annuity-specific definition of a “material conflict of 

interest” that would make clear that an insurance commission that is higher than a mutual fund 

commission or that is initially higher than a fee-based compensation arrangement is not by itself 

evidence of a violation of the best interest standard.

Disclosure. The Department should ensure required disclosures work for annuity products. A tailored 

disclosure for annuities would cover a description of the contract and its benefits, advisor compensation 

(defined as insurance commissions), other payments to the advisor, selling firm, or the Financial 

Institution as defined in Section VII(e) of the red-lined BIC Exemption attached..

Insurance company “spread” should be expressly excluded from the disclosure requirements and the 

“reasonable compensation” definition because it is not something that can be known or quantified over 

any particular period. For example, in the case of a fixed annuity, or the fixed component of a variable 

annuity, spread is the difference between the fixed return credited to the contract holder and the 

insurer’s general account investment experience. The spread can be positive or negative and is not

known in advance, or at any point in time during the life of the contract. Until the insurer’s performance 

under the contract is complete, it will not know whether it has lost money, covered its costs or perhaps 

gained a profit on that contract. The Department has agreed with this in other regulatory contexts and 

should also do so here. 
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Dennis Glass

President & CEO

Lincoln Financial Group

Operational Conditions. We also propose several changes to the BIC Exemption for all products sold in 

reliance on it, including annuities. The intent of these proposed changes is to remove unnecessary 

administrative burdens that do not benefit retirement savers and retirees so that firms will be able to 

use the BIC Exemption to recommend all retirement investment products, including annuities – that are 

in the client’s best interests. Many of these are changes that were specifically raised by many of the 

undersigned companies as well as industry groups during the comment period that ended in July. The 

attached mark-up in Appendix A provides more detail about these proposed changes and supporting 

rationale. 

Thank you for the opportunity to comment on this important initiative.

Sincerely,

Johnny Johns

Chairman, President & CEO

Protective Life Corporation

Mark Pearson

Chairman & CEO

AXA US

John Woerner

Chairman & President

RiverSource Life Insurance Company

James R. Sopha

President 

Jackson National Life Insurance Company

Mark Mullin

President & CEO

Transamerica

James T. Morris

Chairman & CEO

Pacific Life Insurance Company

Kirt Walker

President & CEO, Nationwide Financial

Nationwide